Optimism Propagation

54 Pages Posted: 4 Dec 2015 Last revised: 25 Aug 2018

See all articles by Torsten Jochem

Torsten Jochem

University of Amsterdam

Florian S. Peters

University of Amsterdam

Date Written: August 23, 2018

Abstract

We document that managerial optimism spreads across firms along supply chains. Supporting a causal interpretation, we show that beliefs trickle up the supply chain, not down, and that biases in supplier forecasts are only affected by customer forecasts issued before, not after, the supplier's forecast. We further find that bias propagation increases when suppliers have less confidence in their own views and when the perceived precision and importance of customer forecasts increase. Optimism causes changes in the corporate policies of suppliers, suggesting that contagious sentiment in production networks contributes to fluctuations of business and financing cycles.

Keywords: Managerial optimism, Bias propagation, Expectation formation, Production networks

JEL Classification: G4, D8, D9, G3, D2

Suggested Citation

Jochem, Torsten and Peters, Florian S., Optimism Propagation (August 23, 2018). 8th Miami Behavioral Finance Conference 2017. Available at SSRN: https://ssrn.com/abstract=2698365 or http://dx.doi.org/10.2139/ssrn.2698365

Torsten Jochem

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV
Netherlands

Florian S. Peters (Contact Author)

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TW
Netherlands

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